Rebirth

The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis.

Deng Accepted That There Were Limits to His Expertise

Changing China's Market Framework

China's Opacity Protected it from Crisis

Entrepreneurship Was a Key to China's Boom

Yao Yang

Professor, China Center for Economic Research, Beijing University

Yao Yang is a professor of Economics at the China Center for Economic Research (CCER) and at the National School of Development (NSD), Peking University. He currently serves as the Deputy Director of CCER and Deputy Dean of NSD in charge of academic affairs, and the editor of the center’s house journal, China Economic Quarterly. His research interests include economic transition and development in China. He has published widely in international and domestic journals in addition to authoring books on institutional economics and economic development in China.

In the 1980s we talked about reform a lot, but the only reform we did was rural reform. So, China changed only in the 1990s; the toughest reforms were accomplished in 1990s, and SOE reform was one of them. We always say SOE reform or gaizhi, meaning restructuring, but that’s only a euphemism for privatization. It's actually privatization. Between 1995 and 2005, we privatized 90% of SOEs, so now if you go to China, of course, you still see those huge SOEs, but you don’t see a lot of small and medium sized SOEs. Most of them have been privatized. So, because of privatization, China changed a lot. I don’t think you can still call China a traditional socialist country based on public ownership. The private economy contributes at least two-thirds to China’s GDP, and in industry, the contribution of private firms is even higher. People put it at around 80%. So at least China becomes kind of a mixed economy, it’s not a pure socialist economy anymore. SOE reform has to be done, I think that’s a courageous move, and it was a right move.